appraisal waivers

No appraisal needed. In case you haven’t heard, last year Fannie Mae introduced Property Inspection Waivers, which means an appraisal is not required in certain situations. Is this a good thing? Well, here are some thoughts swirling through my mind. Anything to add?

1) The automation trend: Automation is happening all around us. Right or wrong, machines are taking human jobs, and the world is changing. Elon Musk actually warns that machines will eventually be able to do everything better than humans, which is a scary thought (way too much like The Terminator). Anyway, machines are starting to be appraisers as property inspection waivers are a growing phenomenon in the marketplace. Some loan officers I’ve spoken to have said they’ve only seen a few while others are reporting about 15%+ of their deals are having waivers. How will this trend unfold? That is the question.

2) Systems of checks and balances: Appraisal waivers are going to make sense in some cases with very low-risk Borrowers, but I find myself concerned about the narrative that we need to use alternative valuation products for the sake of a more efficient mortgage. Let’s not forget the profound greed in the banking world and the important role human appraisers play in being the voice of reason in a transaction. Please forgive me if I’m not optimistic when I hear things like, “Trust us, we have big data. We want to save consumers money. We don’t need appraisers.”

3) Cat urine & big data: We put so much weight on big data, but it’s not always right. It’s like we think something intelligent must be happening since math and computers are involved. Google Flu Trends is a perfect example because Google tried to predict flu patterns, but the project ended after being very inaccurate compared to CDC data (Center for Disease Control). Anyway, there is a place for big data in real estate, but let’s remember valuing properties doesn’t always fit into a neat little equation. Algorithms cannot smell cat urine, know about condition or quality of upgrades, understand layout, analyze the impact of non-permitted additions, etc…

4) Uh oh, hybrid valuations: There is a hybrid appraisal product being pushed right now, and here’s how it works. Someone else does the inspection for the appraiser and then the appraiser will do the value part. Will this inspector have adequate training, report deferred maintenance, understand what appraisers look for, know how to measure square footage, or be paid enough to even care? My struggle in thinking this is a good idea is that assessing the layout of a house, location, quality of upgrades, deferred maintenance, etc… is such an important part of value. It sounds easy to split the inspection with the research, but the inspection actually is research. Relying on someone else to do the “inspection part” seems like a step back when it comes to credible valuations.

5) Next in line for automation: I’m not trying to add stress, but I have to ask an important question. Who in real estate is next in line for automation? Real estate agents? Loan officers? Title professionals? Right now we are at the beginning of talking about how digitizing valuations is good for us because it’ll make the mortgage more efficient. Here’s the question. If this happens to appraisers in mass and we’re okay with it, will it be easier to see happen in other niches of real estate? In short, if you belong to an organization and it is within your power to advocate for appraisers, it may be a good time to speak up.

I hope that was helpful or interesting.

Questions: What do you think of appraisal waivers? Is this a good thing or bad thing? Anything I missed? I’d love to hear your take.

What’s the real estate market going to do this year? I thought it would be worthwhile to consider some of the emerging trends to watch in 2017 in Sacramento and beyond. What do you think? I’d love to hear your take in the comments.

1) Bubble conversations: This year we are going to have even more real estate “bubble” conversations. We’ll hear things like, “The bubble is going to pop in 2017”, or “Get ready for 2007 again”, or “It’s all going to crumble after this year.” As these conversations ensue, my advice is to sift through the headlines, pay close attention to actual data, know the limitations of your ability to predict the future, and be in tune with the way the seasonal market tends to behave so you can spot anything out-of-the-ordinary.

2) Creative lending: As interest rates presumably rise in coming time, it will make mortgages more expensive (duh). This won’t matter for some buyers because they have the money to afford the market, but others will need an extra edge to keep up with higher prices. This is where lenders can loosen up financing options so they continue to close deals and make as much money as possible (sounds healthy, right?). Keep in mind President-Elect Trump is talking about repealing Dodd-Frank too, and that could create waves in the market if it actually happened.

3) Housing inventory remains low: There isn’t any quick fix for anemic housing inventory, so we can expect to see another year of low inventory unless something drastic happens causing sellers to list their homes. That brings me to share something I talked about last month. In a video John Wake talks about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. That’s something to keep in mind.

4) Marijuana: It can be polarizing to talk about marijuana, but it’s definitely a market force since it is now legal in California for recreational use. Over the next year many cities and counties will be fine-tuning rules for grow operations, so be on the lookout for details. By no means am I glorifying marijuana, but I will be talking about it in coming years because it’s a force bound to impact real estate values.

5) Smart homes: With the advent of Amazon Echo and Google Home, consumers can now say things like, “Alexa, set the sprinklers for 7am tomorrow morning” or “Okay Google, turn the temperature to 68 degrees.” The huge popularity of these devices during the holiday season will only mean millions more households are now going to be making their homes more digitally connected.

6) Disappearance of the $100,000 market: There is definitely upward value pressure on the lowest end of the price spectrum. Other price ranges last year were much more flat, but not so much with the lowest prices in town. This year in Sacramento we are going to very likely see the disappearance of the market under $100,000. Each month lately we’ve had maybe 6-12 sales under $100,000 for single family detached homes, and after the next few quarters I expect that number might be down to zero. We shall see though.

7) Home flipping courses: There will be no shortage of “learn to flip” courses coming to a city near you. Friends, be very cautious about paying anyone to teach you “secrets” you can probably get for free online. You can read my open letter to celebrity flippers for more thoughts.

8) Custom woodworking: I’ve been seeing more and more custom woodworking in homes. I don’t mean really high-end craftsmanship per se, but rather the cool DIY stuff you might see on Pinterest or a show like Fixer Upper. I’m seeing more wood walls, large wood slabs, custom exterior wood accents on the exterior, etc…. As a dabbling woodworker, this makes me smile.

9) More agents will enter the market: When values increase and positive real estate news saturates the market, it tends to compel people to enter the real estate profession. So last month’s headline that Sacramento will be one of the “hottest market in the nation” in 2017 very likely sealed the deal for a number of folks on the fence about getting into real estate.

10) Multiple offers: We are likely to continue to see a climate of multiple offers in the Sacramento area. In a market like this I would advise sellers to be realistic about pricing their homes properly. What have similar homes actually sold for? What is similar and getting into contract right now? It’s easy to cherry-pick the highest non-similar sales in the neighborhood because “the market is hot”, but we have to remember similar homes are the “comps” appraisers are going to use (key point). At the end of the day appraisers have to support the value, so it may be best to be reasonable on the front end rather than run into all sorts of “appraisal issues” because the property got into contract too high. Remember, just because housing inventory is low does not mean you can command whatever price you want. That may have been more true in early 2013, but it’s not true right now.

11) The 2-4 unit market is heating up: These days in many areas it seems like the market is heating up with some surprisingly high prices again for 2-4 unit properties. Values were subdued for years after the housing crash, but news of increasing rents is certainly part of what’s helping drive 2-4 unit prices up. I’ve also observed some Bay Area buyers wanting to park money in Sacramento and overpay. Sometimes unrealistic cap rates are being used to justify value too (more on that in a few weeks maybe).

12) Appraisal waivers: Last month Fannie Mae rolled out an appraisal waiver program. They say this program is only for refinances, but it’s a pretty good guess we’re going to see some purchases waived too. On one hand this program can help offset slower turn-times by appraisers lately, but on the negative side of things it can lead to inflating values too. In short, let’s watch this closely and not forget important safeguards in real estate (like appraisers).

BONUS: This is a quick (well, 12 minutes) walk through what it looks like to see the seasonal trend in real estate and what it was like when values began to decline in 2005. With so much “bubble” talk these days, it’s critical to be able to cut through any hype, focus on data, and be able to spot seasonal trends (and non-seasonal trends). Watch below (or here):

I hope that was helpful or interesting.

Questions: What else do you think will be important in 2017? Did I miss something? I’d love to hear your take.

Have you ever taken a selfie from a particular angle to make sure you look as good as possible? Be honest. Of course you have, and so have I. Well, housing stats can be just like selfies. It’s easy to pick the best angles (stats) to share while missing the real picture. Let’s keep this in mind as it’s tempting in real estate to gravitate toward “hot” headlines while missing the full story. Let’s kick around some ideas below and then take a deep look at the Sacramento market. Any thoughts?

1) Market hotness: It’s been blasted all over the news that Sacramento is going to be one of the hottest markets in the nation next year. The SacBee wrote about this a couple of weeks ago and I was actually quoted in the piece. In short, Realtor.com predicts we will see a 7% increase in value. The irony is price stats showed a 7% increase in 2015 and we’re on track to see something similar for 2016 in Sacramento. Thus I suppose Realtor.com could have just said “Sacramento will do what it’s done for two years in a row.” Zing. Remember, just because the median price went up 7% doesn’t mean actual values increased by that much. This is a huge point and we can talk about it in the comments if you wish.

2) Deciding to wait to sell: When sellers hear the market is “hot” or sense values are increasing, they sometimes wait to list their homes. Last week an agent told me an owner who was ready to get her property on the market called and said, “We’re going to wait because we just saw a story on TV that said the market is going to be the hottest in the nation next year.” On a related note I spoke with a client who is now concerned about his home increasing in value too much since he is going through a divorce. This reminds me of a video John Wake shared on Twitter. He was talking about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. Really good stuff from John.

3) VA appraisal fees just increased: If you haven’t heard, VA increased their appraisal fees from $450 to $600 in the Sacramento area. Unlike other loan programs, VA pays a standard fee for every appraisal. Just a heads-up.

4) Fannie Mae waiving appraisals: A few days ago Fannie Mae officially began a program to waive appraisals for certain refinances. In the background Fannie has been mining data from appraisal reports for the past two years for their Collateral Underwriter program, and with a database of millions of appraisals they can now eliminate the use of appraisals in some transactions. It’s like Fannie Mae in a small way is helping appraisers dig their own grave. I understand efficiency and how this makes reasonable sense for some transactions, but let’s not forget the very important role appraisers are supposed to play in a transaction.

Any thoughts?

SKATEBOARD GIVEAWAY: If you didn’t know, I love woodworking. Anyway, I made a skateboard and I’m giving it away in two days to someone local (or not local if you know we’re going to see each other soon). Keep it or re-gift it for Christmas. Leave a comment on Facebook if you want to enter the contest and I’ll pick a random name in two days (we don’t have to know each other).

—-—–—– And here’s my big monthly market update ———–—–

Two ways to read the BIG POST:

Scan the talking points and graphs quickly.

Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I’ll keep it around if it seems relevant (not sure yet). Is this a step in the right direction? Download here.

Quick Market Summary:

The market normally softens each year in the fall and we are definitely seeing that right now, but this fall isn’t as dull as some of the seasons we’ve seen in the past. Yes, it took 4 days longer to sell a home compared to the previous month and prices are down from the summer, but sales volume was up a whopping 18% in the region last month. If you didn’t know, sales volume has actually been higher for four months in a row in the Sacramento region. On the other hand, one of the big issues that just won’t go away is housing inventory is anemic as it’s about 20% lower than it was the same time last year. Of equal importance is interest rates have been ticking up, so buyers are anxious to get their rates locked and their appraisals in on time. As rates presumably rise more next year it will naturally soften values because higher rates take away purchasing power from buyers. Yet the big question is whether lenders will get more creative with financing to help buyers artificially afford higher prices. This reminds us how much power lenders have right now to direct the market.

Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

The median price is the same as it was in August 2007.

Housing inventory is 22% lower than the same time last year (there is only a 1.36 month housing supply).

Sales volume was 17% higher this November compared to November 2015 (up 2.5% for the year).

There were only 36 short sales and 34 REOs in the county last month.

It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 3 days longer to sell).

FHA sales volume is down 6% this year compared to 2015 (24.4% of all sales were FHA last month).

Cash sales are down 11% this year (they were 11% of all sales last month).

The median price is $325,000 and is down 2% from the height of summer, up 1.5% from last month, and 12% higher than last year.

The average price per sq ft was $202 last month (down 1% from a few months ago, but 7% higher than last year).

The average sales price at $349,659 is down about 2% from the height of summer (but is 8% higher than last year).

Some of my Favorite Graphs this Month:

SACRAMENTO REGIONAL MARKET:

Housing inventory is 26% lower than the same time last year.

It took 4 days longer to sell compared to the previous month (but 4 less days compared to November 2015).

Sales volume was 18% higher this November compared to November 2015.

FHA sales volume is down 6% this year compared to last year.

Cash sales are down 8% this year compared to last year.

REOs were 2% and short sales were 2.1% of all sales last month.

The median price was $355,000 in November. It went down slightly from October but is down 3.5% from the height of summer (up 8% from last year).

The average price per sq ft was $208.6 last month. That’s down about 1% from the height of summer and 8% higher than last year.

Cash sales were 13.3% of all sales last month (FHA sales were 22%).

The average sales price was $392,500 in November. It’s down about 3.5% from the height of summer but 8% higher than last year.

Some of my Favorite Regional Graphs:

PLACER COUNTY:

The median price was $438,000 last month (highest point of year, but take that with a grain of salt).

The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).

It took 41 days to sell last month (same as previous month but 6 days less than one year ago).

Sales volume was about 3% lower this October compared to October 2015.

FHA sales volume is down 16% this year compared to last year.

Cash sales were 17% of all sales last month (FHA sales were 13%).

Cash sales are down 3.6% this year compared to last year.

Housing inventory is 13% lower than the same time last year.

Both REOs and short sales were each 1% of sales last month.

The average sales price was $481,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.

Disclaimer

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